Recovery of Rent
UK Cases
GLC v Connolly
GREATER LONDON COUNCIL V. CONNOLLY
(Court of Appeal)
[1970] 2 Q.B. 100; [1970] 1 All E.R. 870; [1970] 2 W.L.R. 658
Rent isa profit issuing out of and derived from land payable by a tenant toa landlord asa compensation/ consideration for possession of the land demised duringa given term. In paying rent, a tenant implicitly acknowledges his landlord’s title. In C.H. Bailey
v. Memorial Enterprises [1974] 1 W.L.R. 728 (C.A.), Lord Denning, at p. 732, cited and approved Holdsworth’s History of English Law, Vol. VII (1900), p. 262, which states:
I
… in modern law, rent is not conceived•of as a thing, but rather asa payment whicha tenant is bound by his contract to make to his landlord for the use of the land.
Also, in Bradshaw and Another v. Pawley (1980) 253 E.G. 693, Sir Robert Megarry V.-C. stated, at page 108:
I would follow Foa’s Landlord and Tenant (8th edn 1957) p. 101 in regarding rent as being prima facie “the monetary compensation payable by the tenant in consideration for the grant, however it be described or allocated”, though I think that I would insert the word “periodical” before the word “monetary”. I would also pay more attention to modern than medieval concepts in considering the nature of rent. If the parties to a lease choose to agree that the lessee shall pay rent to the lessor in respect of a period prior to the grant of the lease,I do not see why this should not be valid and enforceable. So far as it goes,I think that M’Leish v. Tate (1778) 2 Cowp 781 at p. 784 supports the view that rent may still be rent even though it is reserved in respect of the ccupation by a tenant at some time prior to the execution of the instrument which reserves the rent. Even if this is wrong, and the payments in dispute, though described as “rent”, are not in law “rent”, strictly so called,
I cannot see why the lessors should not enforce payment. There is nothing to stopa man from being liable on a covenant to pay a sum of money in respect of some past period.
A reservation of rent clause is not a vital prerequisite for the existence ofa tenancy, even though most formally drafted leases expressly include a covenant requiring the payment of rent. In Paradine v. Jane (1647) Aleyn 26, it was held, in the absence of any express clause in the lease to the contrary, that the rent for the land demised was payable even where the buildings situate on the demised land had been destroyed by fire. However, it must be acknowledged that such an event may, since the House of Lords’ decision in National Carriers Ltd v. Panalpina (Northern) Ltd (p. 405, below), cause
a lease to be frustrated. In the event of the lease being frustrated, the tenancy is determined and the obligation to pay rent ceases but the frustrating event must be of such an order as to deprive the tenant of the substantial benefit of the letting.
In the autumn of 1968 the Greater London Council increased the rents of the tenants of some quarter of a million houses by amounts averaging ls 6d a week. The increases were approved by the Minister of Housing for the purposes of the Prices and Incomes Act 1968. The rent books of the tenants contained printed conditions of the tenancies. By condition 2, the rent was “liable to be increased or decreased on notice being given”. The Council increased the rents by notices of June 1968 to the tenants, informing them of the increases which were to take effect on 30 September 1968. In August 1969, notices to quit were served on the small minority of tenants who had refused to pay the increased rents. The notices to quit were signed by the Council’s Director of Housing who had power to authorise appropriate proceedings for the eviction of the Council’s tenants with freedom to consult the chairman of the Housing Committee.
In proceedings for possession against the tenants whose notices to quit had expired, the county court judge gave judgment for the Council. On appeal, it was contended inter alia for the defendant tenant that condition 2 was void for uncertainty.
Held: Generally, the courts were loath to hold that a clause in an agreement was void for uncertainty and, although the amount of rent was dependent on an act of the landlord, it could be calculated with certainty at the time when payment became due and so was not uncertain.
Lord Pearson: The first issue is whether condition No. 2 in the contract of tenancy was void for uncertainty as a matter of contract law. As my Lord has said, the courts are always loath to hold a clause invalid for uncertainty if a reasonable meaning can be given to it, and it seems to me easy to give a reasonable meaning to this condi tion. Indeed I would not have thought the ordinary person reading it would have any real doubt as to what it meant. The conditions of the tenancy are introduced by these words:
The conditions of tenancy applicable to the accommodation you are invited to view are set out below for your information. If you accept the tenancy you will be required to sign an acknowledgment confirming that you have read and understand the conditions of tenancy.
Evidently these conditions of tenancy are introduced to the tenant in some document addressed to him by the local authority who will become his landlords, and it is in the light of those introductory words that one can read condition No. 2: “The weekly net rent and other sums as shown on the front cover of the rent card are liable to be increased or decreased on notice being given”. That is a warning to him that the local authority, his landlords, may by notice increase or decrease the rent. Thus there is not any real uncertainty as to the person by whom this notice has to be given.
Another point taken was that there is no statement specifying what length of notice is to be given. I think the answer is the one which has been given, that a reasonable notice is to be implied. As Mr Francis pointed out in his argument, there are a number of illustrations of cases in which the law implies that something not specified is to be understood as reasonable. In a sale of goods contract, if there is no specified price, a reasonable price is to be understood; and if an employee is to be dismissed, he must be dismissed by reasonable notice. It has to be ascertained on the facts of a particular case what is reasonable. I do not think in this case it is necessary on the whole or desirable to state what length of notice would be appropriate. I do not think one can say that the same period of notice must be appropriate in all cases. If a notice of decrease of rent or other sum were to be given, there would be no need for a protracted notice, and probably one day’s notice would be sufficient. But it is the other way round if a notice of increase is to be given: then there is something to be said for the view that rather more than four weeks’ notice should be given in order that the person in occupation should have an opportunity of leaving before the increased rent or other sum has to be paid. But I think it is sufficient to say that one can give certainty to the clause by saying that reasonable notice is required and it has to be considered on the facts of a particular case whether the notice is reason able or not. In this particular case there can be no doubt that an adequate notice was given, because it was given on some date in June to expire at the end of September. That was a very long notice and was clearly adequate.
The second question is whether condition No. 2 is void because it fails to pro vide a certain rent – a rent certain, as required by law. That has to be decided in the light of the established authorities on the point, and there are three which strike me as important. The first is Ex parte Voisey, In re Knight(1882) 21 Ch.D. 442; and the two most relevant passages are in the Master of the Rolls’ judgment at p. 456 and in the judgment of Brett L.J. at p. 458. Sir George Jessel M.A. pointed out, at p. 456:
Again, we are familiar in London and many other large towns with variable rents, especially in building and improving leases, whttre there are rents varying from year to year, and in gaps and intervals, depending upon .the performance of various duties, sometimes by the tenant, sometimes by the landlord, and sometimes by one or the other. The kind of improve ment most familiar to us in regard to :agricultural leases is drainage. It very often happens that when the landlord does the drainage he puts in a stipulation that he shall receive a certain percentage on what he lays out, and he may be entitled to drain even without the consent of the tenant, and to cause the tenant to pay an increased rent.
The importance of that passage is •that it shows that the increase of rent may be dependent by the terms of the lease upon some unilateral act of the landlord.
The other passage which I think is important is in the judgment of Brett L.J. where he deals with the question of a fluctuating or variable rent, and he says, at p. 458:
If in the present case the agreement had been this, that in case of the non-payment of the instalments by the mortgagor, the rent should be the damage which the other party might suffer, so that it would have to be ascertained at large or by a tribunal, that would be a stipu lation for an uncertain payment which could not be rent, and then there would be no lease. But here it seems to me that, upon the happening of the condition named, the rent fixes itself and is therefore a certain rent.
As I understand that passage, the reason why in the first case there has not been a certain rent is because it would not be ascertained until afterwards, when the question was submitted to some arbitrator or tribunal or court to decide how much the rent should be. The present case seems to me to be one which falls within the last sentence of that passage. Upon the happening of the condition, namely, when the landlord serves the required notice, the rent is fixed, and therefore the rent is fixed by the time it becomes payable. I would adopt something which Mr Raymond Walton said: there has to be a certain rent to be demanded and paid or distrained for. The rent has to be certain at the time when it is demanded and has to be paid; and it would follow that it will be certain at the time when it can be distrained for. That is the rule which would naturally be derived from those passages in Ex parte Voisey, 21 Ch.D. 442, 456, 458. It is also confirmed by what is said in Attorney-Genera/ for Alberta v. Huggard
Assets Ltd [1953] A.C. 420, 440, and also by what Denning L.J. said in Treseder Griffin v. Co-operative Insurance Society Ltd [1956] 2 Q.B. 127, 148, 149. In my view the right rule is that the rent has to be certain at the time when it becomes payable, and that requirement is complied with in the present case.
United Scientific Holddings Ltd v Burnley
UNITED SCIENTIFIC HOLDINGS LTD V. BURNLEY BOROUGH COUNCIL
(House of Lords)
[1978] A.C. 904; [1977] 2 All E.R. 62; [1977] 2 W.L.R. 806; 33 P.& C.R. 220
Lord Diplock: My Lords, during the last two decades since inflation, particularly in the property market, has been rife, it has been usual to include in leases fora term of years, except when the term is very short, a clause providing for the annual rent to be reviewed at fixed intervals during the term and for the market rent current at each review date if it be higher, to be substituted for the rent previously payable. The wording of such clauses varies; there are several different ones now included in the books of precedents; but a feature common to nearly all of them is that not only do they specifya procedure for the determination of the revised rent by agreement between the parties or, failing that, by an independent valuer or arbitrator, but they also set outa time-table for taking some or all of the steps in that procedure which, if followed, would enable the revised rent to be settled not later than the review date. The question is, whether a failure to keep strictly to the time-table laid down in the review clause deprives the landlord of his right to have the rent reviewed and con sequently of his right to receive an increased rent during the period that will elapse until the next review date.
Ona number of occasions during the last five years the question whether time was of the essence ina whole variety of rent review clauses has come before the High Court and the Court of Appeal. Until the judgments of the Court of Appeal in the instant case the answers given seem to turn upon fine distinctions between the wording of particular clauses so as to classify them, either on the one hand as con ferring upon the landlord a unilateral “option” for the exercise of which time was of the essence, or on the other as merely laying down the machinery for the perform ance of mutual “obligations” by the tenant as well as by the landlord, in which case time was not of the essence.
The suggested dichotomy between the so-called “option” clauses and “obligation” or “machinery” clauses was discarded in the instant appeal by the Court of Appeal.
In the appeal of United Scientific Holdings Ltd v. Burnley Borough Council [1976] Ch. 128, Buckley, Roskill and Browne l.JJ. in separate judgments held that the commercial character of the contract contained in a lease incorporatinga rent review clause raised the presumption that the parties intended time to be of the essence of the contract in respect of each step required to be taken by the landlord in order to obtaina determination of any increased rent under a rent review clause.( … )
It is not disputed that the parties to a lease may provide expressly that time is or time is not of the essence of the contract in respect of all or any of the steps required to be taken by the landlord to obtain the determination of an increased rent, and that if they do so the court will give effect to their expressed intention. But many rent review cases that are now maturing do not contain express provision in these terms. What the Court of Appeal have decided is that the commercial nature of the contract and/or the legal nature of the right granted to the landlord bya rent review clause raisesa presumption that time specified in such a clause for anything that needs to be done by him is of the essence; and that this presumption will prevail unless there are strong contra-indications in the actual wording of the clause. They found no suffi cient contra-indications in the rent review clause in question in the instant appeal.
My Lords, the rules of equity, to the extent that the Court of Chancery had devel oped them up to 1873 asa system distinct from rules of common law, did not regard stipulations in contracts as to the time. py which various steps should be taken by the parties as being of the essence of the contract unless the express words of the contract, the nature of its subject matter or the surrounding circumstances made it inequitable not to treat the failure of o:ne party to comply exactly with the stipulation as relieving the other party from the duty to perform his obligations under the con tract. The Court of Chancery had reached this position in relation to contracts for the sale of land by the extension by Lord Eldon LC. of the earlier doctrine thata stipula tion as to the time of repayment by the mortgagor under a legal mortgage was not of the essence of the contract so as to entitle the mortgagee to refuse to reconvey the property if payment with interest was tendered after the stipulated date was passed:
Seton v. Slade (1802) 7 Ves.Jun.265.
Contemporaneously with this development of the rules of equity by the Court of Chancery, the courts of common law were in. process of developing for themselves a not dissimilar rule in relation to stipulations as to time in other contracts, but were reaching their solution by a different route. They did so bya growing recognition of exceptions to the rule which had been fostered in the early part of the 18th century by the necessity for the plaintiff under the then current rules of pleading to aver performance or willingness or ability to perform all stipulations on his part in the pre cise words in which they were expressed in the contract. This rule treated all promises by each party toa contract as “conditions precedent” to all promises of the other: with the result that any departure from the promised manner of performance, however slight that departure might have been, discharged the other party from the obligation to continue to perform any of his own promises. The history of the development by common law courts of exceptions to this rule is traced in the judgments of the Court of Appeal in Hongkong Fir Shipping Co. Ltd v. Kawasaki Kisen Kaisha Ltd [1962]2
0.8. 26 from its origin in Boone v. Eyre, 1 Hy.Bl. 723n. in 1779 to the judgment of Bramwell B. in Jackson v. Union Marine Insurance Co. Ltd (1874) LR. 10 C.P. 125, 147 on the eve of the coming into force of the Supreme Court of Judicature Act 1873. My Lords,I will not take up time in repeating here what I myself said in the Hong kong Fir case, except to point out that by 1873:
(1) Stipulations as to the time at which a party was to performa promise on his part were among the contractual stipulations which were not regarded as “conditions precedent” if his failure to perform that promise punctually did not deprive the other
party of substantially the whole benefit which it was intended that he should obtain from the contract;
(2) When the delay by one party in performing a particular promise punctually had become so prolonged as to deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract it did discharge that other party from the obligation to continue to perform any of his own promises which as yet were unperformed;
(3) Similar principles were applicable to determine whether the parties’ duties to one another to continue to perform their mutual obligations were discharged by frus tration of the adventure that was the object of the contract. A party’s ability to perform his promise might depend upon the prior occurrence of an event which neither he nor the other party had promised would occur. The question whether a stipulation as to the time at which the event should occur was of the essence of the contract depended upon whether even a brief postponement of it would deprive one or other of the parties of substantially the whole benefit that it was intended that he should obtain from the contract.
In one respect the Court of Chancery had introduced a refinement in the way it dealt with stipulations as to time in contracts for the sale of land, which had no close counterpart in the rules that had by 1873 been adopted in the courts of common law. Once the time had elapsed that was specified for the performance of an act in a stipulation as to time which was not of the essence of the contract, the party entitled to performance could give to the other party notice calling for performance within a specified period: and provided that the period was considered by the court to be reasonable, the notice had the effect of making it of the essence of the contract that performance should take place within that period. Hence the reference in the statutory provisions that I have cited to time being deemed to “have become” of the essence of the contract.
Both in the Court of Chancery and in the courts of common law the rules that have been developed about particular stipulations not being of the essence of the contract or not being “conditions precedent” applied to synallagmatic contracts only. They did not apply to unilateral or “if contracts,” of which the example most germane to the instant appeal is an option. As pointed out by Lord Denning M.R. in United Dominions Trust (Commercial) Ltd v. Eagle Aircraft Services Ltd [1968] 1 W.L.R. 74, 81 where speaking of options to purchase real or personal property or to renew a lease, he said:
In point of legal analysis, the grant of an option in such cases, is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract, the offer must be accepted in exact compliance with its terms. The acceptance must correspond with the offer.
Exact compliance with the terms of the offer in an “if contract” had been required in courts of equity as well as in courts of common law: see Weston v. Collins (1865) 12 LT. 4; Finch v. Underwood (1876) 2 Ch.D. 310. A rationale of the distinction which was drawn between the two kinds of contracts in courts of equity is that equity was concerned with the performance of contracts into which parties had already entered. It did not force any person to enter into a contract with another.
Again I will refrain from repeating the more elaborate juristic analysis of the distinction between the two types of contract that I attempted in the United Dominions Trust case [1968] 1 W.L.R. 74, 83-84. A more practical business ex planation why stipulation as to the time by which an option to acquire an interest in property should be exercised by the grantee must be punctually observed, is that the grantor, so long as the option remains open, thereby submits to being disabled from disposing of his proprietary interest to anyone other than the grantee, and this without any guarantee that it will be disposed of to the grantee. In accepting such a fetter upon his powers of disposition of his property, the grantor needs to know with certainty the moment when it has come to an end.
My Lords, althougha lease is a synallagmatic contract it may also containa clause granting to the tenant an option to obtain a renewal of the lease upon the expiration of the term thereby granted. Such a clause provides a classic instance of an option to acquirea leasehold interest in futuro, and it is well established thata stipulation as to the time at which notice to exercise the option must be given is of the essence of the option to renew. Although your Lordships have not been referred to any direct authority upon the converse case of a “break clause” granting to the tenant an option to determine his interest in the property and his contractual relationship with the landlord prematurely at the end of a stated period of the full term of years granted by the lease, there isa practical business reason for treating time as of the essence of sucha clause, which is similar to that applicable to an option to acquire property. The exercise of this option by the tenant will have the effect of depriving the landlord of the existing source of income from his property and the evident purpose of the stipu lation as to notice is to leave him free thereafter to enter intoa contract witha new ctelanuasnet.fora tenancy commencing at the date of surrender provided for in the break
The rent review clause that has given rise to the instant appeal, as well as nearly all those which have been considered in the reported cases, if they result in any alteration of the rent previously payable can only have the effect of providing for the payment ofa higher rent than would be payable by the tenant if the review clause had not been brought into operation. S6 the only party who can enefit froma review of rent under these clauses is the landlord. It is accordingly unlikely that the tenant would take the initiative in obtaining review of the rent, even where the clause contains provision for his doing so.
It was this concentration of initiative and benefit in the landlord that led the Court of Appeal to regard the rent review clause as conferring upon the landlorda uni lateral right to bring into existence a ne)N contractual relationship between the parties. This they regarded as sufficiently analogous to an option, to make time of the essence of the occurrence of each one of the events in the time-table laid down ina review clause for the determination of the new rent. For my part, I consider the analogy to be misleading. The determination of the new rent under the procedure stipulated in the rent review clause neither brings into existence a fresh contract between the landlord and the tenant nor does it put an end· to one that had existed previously.
It is an event upon the occurrence of which the tenant has in his existing contract already accepted an obligation to pay to the landlord the rent so determined for the period to which the rent review relates. The tenant’s acceptance of that obligation was an inseverable part of the whole consideration of the landlord’s grant ofa term of years of the length agreed. Without it, in a period during which inflation was anti cipated, the landlord would either have been unwilling to granta lease fora longer period than up to the first review date or would have demandeda higher rent to be paid throughout the term than that payable before the first review date. By the time of each review of rent the tenant will have already receiveda substantial part of the
whole benefit which it was intended that he should obtain in return for his acceptance of the obligation to pay the higher rent for the succeeding period.
My Lords, I see no relevant difference between the obligation undertaken bya tenant undera rent review clause in a lease and any other obligation ina synallag matic contract that is expressed to arise upon the occurrence ofa described event, wherea postponement of that event beyond the time stipulated in the contract is not
so prolonged as to deprive the obligor of substantially the whole benefit that it was intended he should obtain by accepting the obligation.
So upon the question of principle brought to settle, I would hold that in the absence of any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the time-table specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.
I then turn to the rent review clause in the instant appeal.
The lease was a building lease for the term of 99 years from August 31, 1962. By the reddendum the tenant undertook to pay during the first 10 years of the term and “thereafter during the residue of the said term the yearly rent of One thousand pounds plus any additional rent payable under the provisions contained in the schedule hereto”. The schedule was as follows:
During the year immediately preceding the period of the second 1o years of the said term and during the year immediately preceding each subsequent 10 year period of the said term and during the year immediately preceding the last nine year period of the said term (each of such periods being hereinafter referred to as a “relevant period”) the corporation and the lessee shall agree or failing agreement shall determine by arbitration the sum total of the then current rack rent (which expression “rack rent” shall for the purposes of this schedule be deemed to mean the full annual value of the property and of all buildings and erections thereon and appurtenances thereto and including all improvements carried out to the same calculated on the basis of all rates taxes repairs and other outgoings being borne wholly by the occupier thereof) reasonably to be expected on the open market for leases of the pro perty and all buildings and erections thereon and one quarter of the sum total so ascertained or One thousand pounds (whichever is the greater) shall be the rate of rent reserved by this lease in respect of the then next succeeding relevant period. All arbitrations under or by virtue of this schedule shall be referred to the decision of a single arbitrator to be agreed by the parties hereto or failing their agreement thereon shall be referred to the decision of a person to be nominated by the President for the time being of the Royal Institute of Chartered Surveyors and such reference shall be deemed to be a submission to arbitration within the meaning of the Arbitration Act 1950 or any statutory modification or re-enactment thereof for the time being in force.
The only stipulation as to time is that the rent for each successive period of 1O years of the term commencing on August 25 is to be determined (by agreement or failing agreement by arbitration) “during the year immediately preceding” the 1O year period to which that rent will relate.
If the new rent has not been determined by the stipulated date, what is the benefit that it was intended the tenant should obtain from the contract but of which he will have been deprived by its not being determined until later? The Court of Appeal took the view that it was a detriment to the tenant not to know what his new rent was going to be in advance of the date when it started to accrue, as he might not be able to afford the additional rent and might feel compelled to assign the residue of the term to someone else. For my part, I find this unrealistic, if only because under this parti cular clause the tenant can initiate the review procedure himself and unless there is some unforeseen delay on the part of the arbitrator, has it in his power to ensure that the new rent is determined before the stipulated date. Apart from this, delay in the determination of the new rent until after the first rent day following the stipulated date works to the economic benefit of the tenant since until the higher rent has been determined he has the use of the money representing the difference between the former rent and the new rent which he would otherwise have been compelled to pay. The absence of any serious detriment to the tenant if the determination of the new rent is postponed until some time after the commencement of the 10 year period to which it will relate is to be contrasted with the detriment to the landlord if strict adher ence to the date specified in the review clause is to be treated as of the essence of the contract. If it were determined even slightly late the landlord would lose his right
to the additional rent for the whole period of 10 years until the next review date.
So far from finding any contra-indications to displace the presumption that strict adherence to the time-table specified in this rent review clause is not of essence of the contract, the considerations that I have mentioned appear to me to reinforce the presumption.
In these circumstances I do not find it necessary to say more about the facts of the case. It is not disputed that if time was not of the essence of the stipulations in the review clause the appellant landlord is entitled to a declaration that upon the true construction of the lease and in the events that have happened the annual rent
reserved for the 10 year period starting on August 31, 1972, should bea rent deter mined in accordance with the review clause.
I would accordingly allow this appeal and so declare.
Mecca Leisure Ltd v. Renown Investments (Holdings) Ltd and Another
(1984) 271 E.G. 989
the Court of Appeal
Eveleigh L.J.
In accordance with United Scientific v. Burnley Council we have to start with the presumption that time is not of the essence, then, on a consideration of the lease itself and the
surrounding circumstances, to determine whether the parties have shown an intention to make time of the essence. As Lord Fraser said at p. 957:
… it is proper to recall that the application of any general rule may always be excluded if the intention to do so is expressed or clearly implied.
It is clear from the review clause taken as a whole that the parties intended to provide machinery for the determination of a fair rent. They clearly regarded it as desirable if that rent could be determined by mutual agreement. They were to “use their best endeavours to reach agreement as to the amount of the rent.” It is “within twenty-eight days after service of such countemotice (or within such extended period as the Lessor and the Lessee shall mutually agree) … “No time is laid down for the appointment of the arbitrator and no time is laid down for the announcement of his decision. As Dillon LJ pointed out in Touche Ross & Co. at p. 983:
Lord Fraser at p. 960 took into account in relation to one of the particular cases before their Lordships’ House there, as a factor tending against time being of the essence of the rent review clause, that steps fell to be taken which were not under the control of the parties.
It is only from the words of the deeming clause itself that any argument can be raised in support of the contention that time was intended to be of the essence.
Shirlcar Properties Lld v Heinitz & Another
(1983) 268 E.G. 362
Davies J.: The plaintiffs in this case are the lessors and the defendants are the lessees of some shop premises at 35 Moscow Road, London W2. The claim is for rent, but the point in issue in this short cause, in which it has not been necessary for any oral evidence to be called, is the construction of a letter, whichI shall later read in the course of this judgment, dated January 20 1981, sent by the plaintiffs’ estate agents to the defendants and which is relied upon as an effective notice to increase
the rent payable by the defendants.
The lease, dated on the front December 221977, is exhibit P1, and, of course, the
demised property is identified and described, and it is provided that the rent under this lease, which was for a term of 15 years from September 29 1976, should for the first five years be the yearly sum of £3,000. Then it is provided- andI read the exact
words:
For the next five years of the said term either the yearly rent reserved in subclause (a) hereof that is £3,000 per annum
or the open market rental value of the demised premises at the review date whichever is the higher and in either case the same shall remain constant during the whole period referred to in this subclause.
Then there isa similar provision for the third and final five years. Accordingly, this was, of course, a rent review clause.
Then “open market value” is defined as follows:
The expression “open market value” means the annual rent value of the demised premises in the open market which might reasonably be demanded by a willing landlord ona lease fora term of years equivalent in length to the residue unexpired at the review date of the term of years hereby granted with vacant possession at the commencement of the term, and so on.
Then the expression “review date” is defined as meaning the expiration of the fifth year and the expiration of the 10th year of the term. Accordingly, the first review date fell five years from September 29 1976, namely on September 29 1981…..
Then there comes the most important part of the lease for the purpose of this case, and it is clause 3:
The open market rental value shall be determined in manner following that is to say it shall be such annual sum as shall be
(a) specified in a notice in writing signed by or on behalf of the Lessors and posted by recorded delivery post in a prepaid envelope addressed to the Tenant at the demised premises at any time before the beginning of a clear period of two quarters of a year (commencing on one of the usual quarter days hereinbefore mentioned) immediately preceding the review date (and such notice shall be conclusively deemed to have been received by the Tenant in due course of post) or
(b) agreed between the parties before the expiration of three months immediately after the posting by recorded delivery of such notice as aforesaid in substitution for the said sum or
(c) determined at the election of the Tenant (to be made by counternotice in writing served by the Tenant upon the Lessors not later than the expiration of the said three months) by an independent surveyor appointed for that purpose by the parties jointly in writing or upon their failure to agree upon such appointment within one month immediately after the date of service of the said counternotice then by an independ ent surveyor appointed for that purpose on the application of either party alone by the President for the time being of the Royal Institution of Chartered Surveyors and in either case in accordance! with the provisions of the Arbitration Act 1950 as amended.
Then the only other clause in the l ase I think I need read is this:
All stipulations as to time in the foregoing sub-clauses which includes those which I have, read shall be of the essence of the Contract and shall not be capable of enlargement save as agreed in writing by the parties.
Now, clause 3, which I have read in full, which sets out the means of determination of the open market rental value, is what I believe is called a specification agreement determination clause. In simple terms 3(a) means this: the landlord serves a notice and that notice has to be served at least six months before the expiration of the five year period. In that notice he shall specify what the open market rental value for the purposes of the rent review shall be. That has been described, and rightly described, as a trigger notice. The tenant, if a proper notice is so served, may do nothing. If that is so, then the figure specified by the landlord in a proper notice served at the proper times becomes the new rent.
The second possibility, which arises under 3(b), is that, within three months of the posting of the notice specifying in the manner already dealt with, there may be agree ment between the parties; they may get together and come to an agreement as to the revised rent figure. If they do that, then that figure as agreed between the parties becomes the open market rental value and, accordingly, the new rent.
Thirdly, 3(c), the tenant may give a counternotice within the three months immedi ately after the posting of the notice to him specifying the open market rental value, such counternotice setting on foot a valuation by an agreed surveyor or, failing that, a surveyor appointed by the president of the Royal Institution of Chartered Surveyors on the application of either party.
I have taken time not only to read the exact words in the lease but to put them into less formal language. There is no difficulty whatsoever, so it seems to me, in under standing and construing those provisions. The difficulty that arises here begins when the notice now relied upon as being a notice under 3{a) is considered. It is dated January 20 1981; it is addressed to the defendants at the demised premises,35 Moscow Road, which was the correct procedure according to the lease, and then It goes on:
Dear Sirs,
re: 35 Moscow Road, London W2
We act on behalf of your Landlord, Shirlcar Properties Ltd, and have been instructed to deal
with the rent review on the above premises due as at September 29 1981.
The rent required as from the review date is £6,000 per annum exclusive, and we look
forward to receiving your agreement. Yours faithfully,
And then, although it is not on my copy, it is I think agreed there was a signature of the senders, the estate agents, and then the words underneath the signature in capital letters and underlined appear, “SUBJECT TO CONTRACT”. A little lower down, also in capital letters and underlined, the words “RECORDED DELIVERY”.
No further action was taken by either party – in the absence of evidence, that must
be the irresistible conclusion – until the rent demands were sent out to the defend ants- I say “rent demands” because there were other premises in Moscow Road Involved as well, and I am told that the present is a test case which relates to all those properties – claiming rent at the increased figure from September 29 1981. On October 15 1981 the defendants’ solicitors wrote:
We are instructed by the lessees of each of the above numbered properties who have received your recent rent applications in which you purport to suggest that there has been
a rent increase as from September 29 1981.
We have seen our clients’ leases and have also seen your purported notice of increase
of the rent dated January 20 1981.
We have advised our clients that in our view that notice does not constitutea proper
notice pursuant to the terms of our clients’ leases. In the circumstances we have advised our clients to make payment of the rent to which the landlords are legally entitled and
nothing more.
If the plaintiffs are right, accordingly they are entitled to rent at the figure of £6,000 per annum. If the defendants are right, the plaintiffs are entitled to rent only at the rate of £3,000 per annum. In other words, on the defendants’ case there has been no effective notice of increase and therefore no effective increase.
Returning to the letter which is alleged to constitute the notice, when I first read it
I thought that it might be argued that the words “and we look forward to receiving your agreement” could be regarded as mere surplusage. That is not the plaintiffs’ contention either in relation to those words or to the words “SUBJECT TO CONTRACT”. What Mr Reynolds submits – and the court is indebted to him and to Mr Kirk, on behalf of the defendants, for their arguments – is that this was a perfectly good notice under clause 3(a). It specified the annual sum which would be the open market rental value, and accordingly the revised rent, but it also looked forward to a discussion, or discussions, around that figure between the plaintiffs and the defendants or their representatives. As to the words “SUBJECT TO CONTRACT”, Mr Reynolds submits that on the true construction those words do not relate to the letter as a whole but mean that any discussion which might take place following the invitation, which it is submitted is implicit if not explicit in the last words of the letter, would not be binding untial formal contract was reached and would be subject until that time to agreement of course, and also to instructions. Mr Reynolds reminds me of the classical meaning
– and it is not necessary to refer to any cases, as he says, to support i-t of the words “SUBJECT TO CONTRACT”, as follows: Where negotiations or discussions are expressly or impliedly made subject to contract, then the parties remain in a state of negotiation unless and until a formal contract is drawn up and signed. I am not sure how far that definition really assists him in this case. He submits that the word “required” is consistent with a unilateral specification and it can be, as it were, severed from the last phrase in the letter – the last part of that sentence – and the words “SUBJECT TO CONTRACT”.
I do not think that counsel disagree as to the test or tests to be applied. Mr Reynolds submits it is this: could any reasonably minded tenant think that this was a negotiation prior to the initiation of rent review, rather than the first step, the trigger letter, in the recent review proceeding? The defendants say that to be effective the specification in a letter or notice sent, or purported to be sent, under 3(a) must be clear and unequivocal. It must not be, or look like, an opening shot in negotiation.
I have been referred to several cases of which I do not think any are suggested to be, as one would expect them not to be, precisely on all fours with the present case. However, there are observations which give some general guidance. The first is the case of Keith Bailey, Rogers & Co v. Cubes Ltd[1976] 31 P&CR 412, a decision of Templeman J, as he then was. The dispute there concerned a notice under section 25 of the Landlord and Tenant Act 1954, and the question was whether that notice, which was in the common form of notices served under that section of the Landlord and Tenant Act, was sufficient to operate the break clause which existed in the headlease. The learned judge held that it was. He said at p. 415:
In my judgment, anyone receiving one of the notices, with the accompanying letter, must have realised at once that the persons serving the notice were clearing out of the way the lease and underlease by operating the br!:/ak clause and were bringing themselves into direct relations with the plaintiffs as occupiers and were offering to grant them a new lease under the 1954 Act. ·
Then lower down on p. 415 come these, words:
If it is clear – and I find it is clear – that each of the recipients could be in no doubt as to what the landlord was up to and what the notice and the letter meant as far as he was concerned, it does not seem to me that th’e court is entitled or bound to be perverse and invent imaginary difficulties which might have arisen in other cases.
The learned judge then, in, if I may say so with great respect, a manner typical of him, was clearly, succinctly and in robust fashion, stating what really is the test here. Would a recipient be in no doubt as to what the landlord was up to? Both sides here rely on that case as a guide. Mr Reynolds says the tenant could be in no doubt; Mr Kirk says that the notice is at least equivocal.
In the last few words I read from the judgment of Templeman J he was issuing a warning, as I read his words, against testing a possible construction or constructions of a document or notice against hypothetical circumstances. That approach did not en tirely commend itself to Goulding J in the case of Bellinger v. South London Stationers Ltd (1979) 252 ESTATES GAZETTE 699. I do not think that I need go into the facts in that case or really the conclusions of the learned judge, but he said at p. 702:
It seems to me that the matter can be tested in this way. Supposing that a day or two after March 31 Mr Levinson, or someone else on behalf of the tenant, had written to Mr Bellinger and said that the tenant had taken advice and, having regard to current rentals and to the possible costs of arbitration, was prepared to accept after all the figure of £5,250. Suppose that had happened, and suppose that Mr Bellinger, on behalf of the landlord, had then turned round and said, “Oh no; you have by your letter of March 31 required an arbitration, and my figure of £5,250 was on my own advice a low one, and I would now rather go on and see what I can get from an arbitrator”, would the landlord have been entitled to insist on that course? I cannot believe that the court in those hypothetical circumstances would have construed the letter of March 31 as a counternotice that opened the door irrevocably (in the absence of further agreement) to an arbitration. I do not forget, indeed, that Templeman J, as he then was, in the case which I have cited
that is the one that I have also cited – Keith Bailey said not only that the court should not be perverse and should not be over-obstructive, but also that the court should not invent imaginary difficulties which might have arisen in other cases. None the less, on a simple question of interpretation such as this is, I know of no other method than to test the meaning of the language in different hypothetical circumstances, and I am forced to the conclusion …
and then the learned judge stated his conclusion, which was that there was nothing sufficiently specific to constitute a counternotice under the clause in the lease in that case. Mr. Kirk says that if various hypothetical circumstances are used to test this letter asa notice, then it shows again that it is not a clear and unequivocal specification. For example- and he gave more than one – it would be open to landlords following this notice to enter into discussions, and then if for some reason before the final date
for the giving ofa specification notice, as I say, property values in Moscow Road dramatically increased, to serve a further specification notice, putting forwarda figure higher than that of £6,000 per annum, and so on and so on.I think that, as Templeman J said, one must be careful in not allowing perhaps somewhat fanciful circumstances to cause one to invent ambiguity or obscurity if it does not exist; but at the same time,
I agree with Goulding J that it is a way of testing the document.
It is right to say that Mr Reynolds submits that these cases, dealing sometimes
with tenants’ counternotices – and the final case to which I need briefly refer is another such- are not necessarily of application to a notice from the landlord, andI bear that comment in mind. The final case, of which I do not thinkI need say much, is Edlingham Ltd V. MF/ Furniture Centres Ltd (1981) 259 ESTATES GAZETTE 421. That case was tried by McNeil! J, and first of all he cited and applieda passage ina judgment by Templeman LJ, as by then he had become, in the Amalgamated
Estates case. Templeman LJ said:
It is true that no magic formula is required, but in my judgment, the tenant must make it clear to the landlord that he proposes to have the rent decided by arbitration in accordance with the provision of the lease.
Then later on McNeil! J said this:
I do not think it is necessary for the purposes of this judgment to expressa view as to whether or nota counternotice to be effective must expressly refer to the relevant clause of the lease which is in point.
I stop there to say that certainly it has not been argued here thata notice bya land lord need refer to the particular clause in the lease.
My inclination goes on the learned judge would be to say that that degree of formality is probably unnecessary but then come the important words:
But the notice must identify the form of relief which the tenant is seeking and must do so unequivocally. Ifa notice may be read as an invitation to negotiate or as an election to arbitrate, it seems to me to be a defective notice.
Now, I know that that is relating to a counternotice, and I have mentioned that it has been rightly pointed out that care must be used in relying on such cases when dealing witha notice. The fact is that, although no magic formula is required, the cases thatI have referred to, to which my attention has been drawn, do make it quite clear, asI think, that all notices of this character must be unequivocal and indicate what the landlord or tenant, as the case may be, is doing by that notice. Is he giving a specification, for example, or an invitation to negotiate? In other words, coming back to where I started in dealing with the cases, in Templeman J’s words: “Is the notice such as to leave the recipient in no doubt as to what the landlord was up to?”
There is one further point taken by the defendants which is not suggested to be a strong point but is simply a circumstance which is relevant, as I agree it is, and that is that this notice was served not only in good time but it was served two months or a little more before it need have been, and while, of course, the last thing one would want to do is to criticise anyone for serving notices in good time, that does seem to me, as far as it goes, rather to tend to support the construction, or the probability of the construction, which the defendants contend for as the right one.
Turning back for the last time to the letter, it seems to me that, taken as a whole, it is rightly subjected to the criticisms put forward on behalf of the defendants. It is a very simple process indeed, so it seems to me, to specify as provided for in clause 3(a), but that is not what the plaintiffs’ agents did. True, they mention the date, but then they look forward to discussion and, as I interpret the words, ultimate agree ment; and then not any particular part of the letter but the whole letter is made subject to contract. It seems to me that, received as it was over two months before the date when the specification notice had to be given, the effect on a reasonable tenant would not be: “This is a letter saying that the rent will be £6,000 a year unless I either serve a counternotice asking for an independent surveyor or set on foot some discussions leading to an agreement at another figure”.
The point is not easy and I have warned myself that the court should not be astute to find some mere technicality to disqualify the notice. I have tried not to do that, and Mr Kirk has expressly stressed that he submits this is not a mere technicality. The question is, I repeat: did this notice-make quite clear to the recipient what the plaintiffs were up to? I do not think that it dfd. I do not think it is an unequivocal notice under clause 3(a). I think it is looking forward, as I have said, to discussions and agree ment, and the whole letter, perhaps most important of all, is subject to contract. It seems to me it can only mean everything in the letter is “subject to formal agreement between us. Until then, negotiation is the state which we are in”. That, indeed, is in less felicitous language, adopting the definition of the words “SUBJECT TO CONTRACT” which Mr Reynolds gave.
As I have said, my construction of the letter accepts the submissions made by the defendants, and accordingly it seems to me, subject to what counsel may say, the defendants are entitled to judgment.